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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI AMARJIT SINGH&
PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the Revenue is directed against the order dated 31.03.2015 passed by the Commissioner of Income Tax (Appeals) – 7, Ahmedabadunder section 143(3)of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) arising out of the order dated 20.02.2013 passed by the ACIT, Gandhinagar Circle, Gandhinagar for Assessment Year 2010-11. 2. The deletion of addition of Rs. 46,49,38,848/- made by the AO on capital expenditure incurred by the appellant on the asset of Pandit DCIT vs.Gujarat Energy Research and Management Institute Asst.Year –2010-11 Deendayal Petroleum University (PDPU) (hereinafter referred to as “the university”) has been challenged by Revenue before us.
During the course of assessment proceeding a show-cause was issued by the Ld. AO as to why the said expenditure will not be disallowed for charitable purposes in reply whereofthe assessee submitted the details with the explanation that the assessee is bound to incur expenses time to time towards the set-up and expansion of the university in terms of Provision of Sec. 25 of the Pandit Deendayal Petroleum University Act, 2007. Though, both the organisations are two separate entities, having separate PAN No., the object of these two are same towards improvement of education, training and research requirement in energy sector i.e. oil and gas sector being a charitable cause for the public at large. The relevant document including the minutes of the meeting on the policy decision of non-recurring expenditure of PDPU, the details of bills and vouchers were duly submitted before the Ld. AO. However,such explanation rendered by the assessee was not found acceptable by the Ld. AO andaddition thereon was made, which was, in turn, reversed by the First Appellate Authority. Hence, the instant appeal.
The Ld. DR basically relied upon the order passed by the Ld. AO. It was further argued by the Ld. DR that the asset created on the funding of the appellant is used for the courses of the university and not by the appellant. Thus the effective use and benefit is derived by the said university only. Since the expenditure is not incurred for the object of the appellant trust the same not found allowable. DCIT vs.Gujarat Energy Research and Management Institute Asst.Year –2010-11
The Ld. Sr. Counsel appearing for the assessee relied upon the order passed by the Ld. CIT(A). He further referred the Provision of Sec. 25 of the Pandit Deendayal Petroleum University Act, 2007 whereby and whereunder the appellant was made liable to invest funds time to time for the development of the Pandit Deendayal Petroleum University. Further thathe relied upon the judgment passed by the juri ictional High Court in the case of CIT vs. Sarladevi Sarabhai Trust No. 2 reported in 1988 40 taxman 388 (Gujarat), where the Board’s instruction dated 05.01.1978 has been taken case of. In terms of the said instruction though the assessee is spending amount to another charitable trust for utilization of the donee trust towards its charitable objects, the same is proper application of income for charitable purpose in the hands of the donee trust and the donor trust will not lose its explanation under section 11 of the Income Tax Act, 1961. 5. We have heard the respective parties and also perused the relevant materials available on records. It appears that during the course of assessment proceeding it was found that the assessee claimed capital expenditure on an amount of Rs. 46,86,14,891/- in the statement of income as expenditure incurred for charitable purpose u/s. 11 of the Act. It is relevant to mention that the assessee is a society registered u/s. 12AA of the Act; has been promoted by Gujarat State Petroleum Corporation Ltd. and Pandit Deendayal Petroleum University (PDPU) has been established by the Gujarat Act No. 14 of 2007 which has been notified in the Official Gazette of 14.04.2007. It further appears that in respect of the query by and under the notice u/s. 142(1) dated 12.11.2012 as to how the capital expenditure was treated as applied for charitable purposes, the appellant furnished the DCIT vs.Gujarat Energy Research and Management Institute Asst.Year –2010-11 details of expenditure which was incurred on the universitie’s assets. It was further clarified that both the appellant and the said university are two separate entities and are filing separate income tax returns and annual accounts accordingly. In terms of the provision of Pandit Deendayal Pandit University Act, 2007 the appellant has been authorized to appoint the president of the university, one of the member of Board of Governors of the university and one of the members of the Finance Committee of the said the university. In order to achieve the object of education, training and research requirement of energy section i.e. oil and gas sector both the organizations are having common agenda towards it having charitable cause for people at large. The appellant has made some payment directly for construction of U. G. Hostel building and upon completion of the construction the said building has been transferred to the appellant. In fact the appellant has set up the university on the plot of land at Gandhinagar which is recognised not only in India but also across the countries and the appellant has started its expansion activities at universitie’s campus which is having a full-fledged university of international standards. Moreso, Sec. 25 of the Pandit Deendayal Petroleum University Act specifies that the appellant is to make payment to the university from time to time such sums of money and in such manner as may be considered necessary for the exercise of powers and discharge of its functions by the university by or under the said Act. We thus find no force in the submission made by the Ld. DR. When the appellant thus has incurred expenditure on the asset of another charitable trust having identical object that too in terms of a statutory provision how the question of violation of the provision of Sec. 11 of the Act can be raised. Withdrawal of exemption u/s. 11 on this ground, thus, is not sustainable. DCIT vs.Gujarat Energy Research and Management Institute Asst.Year –2010-11
We have furthercarefully considered the judgment passed by the juri ictional High Court in the case of CIT vs. Sarladevi Sarabhai Trust No. 2. as relied upon by the Ld. AR. While dealing with this particular aspect of the matter as to whether the assessee was entitled to benefit of the Sec. 11 of the Act particularly when the fund has been spent not on itself but donated to another charitable trust, the Hon’ble juri ictional High Court observed as follows:-
“9. Mr. Patel, for the assessee, on the other hand, submitted that so far as the first contention is concerned, as far as the donor goes, the moment the donation is effected in favour of the donee trust which is also a religious and charitable trust, application of the income for charitable or religious purposes is complete. That even though the donee is required to keep intact the subject-matter of the donation and it is entitled to utilised the income only for its religious and charitable purposes, it would not detract from the applicability of section 11(1)(a) so far as the donor trust is concerned. The donor rust cannot be called upon to always keep a vigil over the activities of the donee trust and even assuming that the donee trust commits breach of the conditions of the donation, it may affect the assessment of the donee but so far as the donor is concerned, once it is found that it has applied its income for religious or charitable purposed by making it available to the donee trust which has similar objects, the benefit of section 11(1)(a) can be said to have been earned by the donor.
Mr. Patel also submitted that the circular letter of the Central Board of Direct Taxes dated January 5, 1978, a copy of which was made available to us by Mr. Patel and which is kept on the record of this case, squarely applies to the facts of the present case and even on that basis, the referred questions have to be answered in favour of the assessee. Mr. Patel, in this connection, placed reliance on the decisions of the Bombay High Court and Calcutta High Court reported in CIT v. Trustees of the Jadi Trust [1982] 133 ITR 494 and CIT v. Hindusthan Charity Trust [1983] 139 ITR 913, respectively. So far as question No. 2 is concerned, Mr. Patel submitted that it is squarely answered against the Revenue by the circular (See [1971] 79 ITR (St) 33, 41) of the Central Board of Direct Taxes and has been rightly pressed into service by the Tribunal for deciding the matter in favour of the assessee. DCIT vs.Gujarat Energy Research and Management Institute Asst.Year –2010-11
We shall deal with the aforesaid contentions of learned counsel for both parties while considering the aforesaid main two questions seriatim.
Question No. 1. - Applicability of section 11(1)(a) of the Act. The relevant provisions of section 11(1)(a) read as under :
"(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income -
(a)income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent. of the income from such property."
A mere look at the aforesaid provisions shows that if the assessee-trust is a trust which holds properties wholly for charitable or religious purposes, income derived from such properties in the hands of the trust would be allowed to be excluded from the total income of the previous year if it is shown that such income is applied by the said trust for charitable or religious purposes in India. The main question which we have to consider in this connection is as to whether the assessee-trust during the relevant year applied its income for charitable or religious purposes or not. What the assessee did was that it donated the concerned income to another trust which is admittedly a charitable and religious trust duly registered under the Bombay Public Trusts Act.
The word "applicable" is not defined by the Act. The dictionary meaning of the term "apply" as given in Chambers' 20th Century Dictionary, amongst others is "to put to use". It cannot be gainsaid that the assessee had made use of is income for the purpose of making it available to another trust, objects of which were also of charitable or religious nature. Consequently, it cannot be said that the assessee-trust had not complied with the provisions of section 11 when it made a donation out of its income in favour of the donee trust which was also a religious and charitable trust. However, Mr. Soparkar, for the Revenue, submitted that the assessee-trust itself could not have earned exemption under section 11(1) if it had blocked its income and had not spent it for the purposes for which it was created. In that connection, he invited our attention to section 11(1)(a) itself and submitted that the maximum income which can be accumulated would be 25% of the income of such property and not more than that. This contention of the learned advocate for the Revenue is met by Mr. Patel, appearing for the assessee. He invited our attention to sub- DCIT vs.Gujarat Energy Research and Management Institute Asst.Year –2010-11 section (2) of section 11 which provided for accumulation even the remaining 75% of the income for a maximum period of ten years subject to a notice in writing being given by the assessee to the Income-tax Officer in the prescribed manner. He also invited our attention to rule 17 of the Income-tax Rules, 1962, which prescribes a format for the notice to be given to the Income-tax officer under section 11(2). Such notice has to be in Form No. 10 and has to be delivered by the assessee to the said officer before expiry of the time allowed under sub-section (1) or sub-section (2) of section 139, whether fixed originally or on extension, for furnishing the return of income. Mr. Patel is, therefore, right when he contends that even in the hands of the donor trust, 100% of the income could have been accumulated for a maximum period of 10 years subject to the trust following the procedure laid down by the Act. If that is so, merely because, the donor trust gifted the concerned income to the donee trust which also was a religious and charitable trust, it cannot be said that the donor trust had acted contrary to the provisions of section 11(1)(a) as tried to be suggested by the learned advocate for the Revenue.
Mr.Soparkar, for the Revenue, next contended that even assuming that the donor trust can be said have complied with the provisions of section 11(1)(a) by making the income covered by the donation available to the donee trust which is also a charitable and religious trust instead of utilising it by itself for such religious and charitable purposes, even then, when the donee trust asked not to utilise this amount, to treat the donation as one of the corpus and to utilise only the income accruing from the corpus for the trust purposes, it cannot be said that the donor trust had applied the income for any charitable or religious purposes in India. Even this contention cannot be accepted for the obvious reason that if the donee trust could have accumulated 100% of its income for a number of year subject to the procedure permitted by the Act, if the donee trust is asked to accumulated or to keep intact the donated amount but to utilise the income arising from the said corpus for its religious and charitable purposes, it cannot be said that the donor trust has not applied its income which is the subject-matter of the donation for religious or charitable purposes. It cannot be disputed that the donated corpus is available to the religious and charitable trust for its own purposes and these purposes are also religious and charitable purposes. The donee trust cannot utilise the corpus for any other purposes nor can it utilise the income arising from such corpus for any extraneous purposes. It is also easy to visualise that keeping the corpus intact and utilising the income accruing from the corpus for religious and charitable purposes would itself amount to application of the income arising from the corpus for religious and charitable purposes. Corpus funds also can be treated to be held for such religious and charitable purposes by the donee trust. Consequently, the contention of Mr.Soparkar that at least in cases where the assessee-trust had donated the amount to the donee trust subject to the condition that the DCIT vs.Gujarat Energy Research and Management Institute Asst.Year –2010-11 donated amount would not be utilised but should be treated to be a donation to the corpus, the provisions of section 11(1)(a) would not apply, cannot be accepted. If any authority were needed to support the aforesaid conclusion of ours, it is supplied by the decision of the Decision Bench of the Bombay High Court in the case of CIT v. Trustees of the Jadi Trust [1982] 133 ITR 494. In that case, the Division Bench consisting of Chandurkar J. (as he then was) and Sawant J. had to consider a similar question. The assessee-trust, called the Jadi trust, was to make over the net income of its trust funds by way of gift or donation to another trust called the H.C.J. Charitable Trust, so that the donee trust could utilise the net income in its hands for all or any one or more of the charitable purposes mentioned in the trust deed dated March 29, 1963, under which the H.C.J. Trust was created. The question was whether such type of utilisation of the net income of the Jadi Trust - the donor trust - could entitled the donor trust to the benefit of section 11 of the Act. The Commissioner of Income-tax contended before the Bombay High Court that the provisions of section 11 would not be satisfied in such a case. Repelling his contention and placing reliance on a decision of the Chancery Division in IRC v. Helen Slater Charitable Trust Ltd. [1980] 1 All ER 785, wherein Slade J., spoke for the Court of Chancery, the Division Bench of the Bombay High Court quoted with approval the following observation of Slade J. in the case of Helen [1980] 1 All ER 785, rendered in the context of a parallel statutory scheme reflected by section 360(1) of the Income and Corporation Taxes Act, 1970, and section 35(1) of the Finance Act, 1965, as in force in England at the relevant time (at p. 505 of 133 ITR) :
"Any charitable corporation which, acting intra vires, makes an outright transfer of money applicable for charitable purposes to any other corporation established exclusively for charitable purposes, in such manner as to pass to the transferee full title to the money, must be said, by the transfer itself, to have `applied' such money for `charitable purposes', within the meaning of the two sub-sections, unless the transferor knows or ought o know that the money will be misapplied by the transferee. In such circumstances, and subject to last mentioned exception, the transferor corporations is in my judgment entitled to claim exemption under the two sub-sections, without having to show how the money has been dealt with by the transferee".
Thereafter, the Bombay High Court made the following pertinent observations on the scope of section 11 of the Act (p. 505 of 133 ITR) :
"So far as the provisions of section 11 of the Act which was in force at the material time is concerned, we do not think that the legal position is in any way different. As already pointed out when a trust which holds property for charitable or religious purposes hands over a donation to another trust which is also a trust made for the application of its funds for charitable or religious DCIT vs.Gujarat Energy Research and Management Institute Asst.Year –2010-11 purposes, there can hardly be any doubt that it would amount o an application of income for charitable or religious purposes by the donor trust. As already pointed out, it would be permissible for a trust either to directly apply the income for charitable purposes or to a charitable work in the field as put by Slade J. or the same funds or income could be utilised through the medium of another charitable institution which applies its funds or income to charitable purposes. The Tribunal is, in our view, right in holding that the assessee was entitled to the relief under section 11(a) of the Income-tax Act, but the propriety of the direction given by the Tribunal need not be dealt with in this reference."
We respectfully agree with the view expressed by the Bombay High Court on the point. Our attention was also invited by Mr. Patel for the assessee to a decision of the Calcutta High Court in the case of CIT v. Hindusthan Charity Trust [1983] 139 ITR 913. In that case, a Division Bench of the Calcutta High Court consisting of Sabyasachi Mukharji J. (as he then was) and Suhas Chandra Sen J. had to consider the question whether donation given by one charitable trust to another trust would be covered by the provisions of section 4(3) of the Indian Income-tax Act, 1922, which is the forerunner of section 11 of the Income-tax Act, 1961. The Calcutta High Court, speaking through Sabyasachi Mukharji J., in terms, held that the assessee donor trust was entitled to exemption under section 4(3) of the Income-tax Act. It must, therefore, be held that when a donor trust which it itself a charitable and religious trust donates its income to another trust, the provisions of section 11(1)(a) can be said to have been met by such donor rust and the donor trust can be said to have applied its income for religious and charitable purposes, notwithstanding the fact that the donation is subjected to any conditions that the donee trust will treat the donation as towards its corpus and can only utilise the accruing income from the donated corpus for religious and charitable purposes, and that the question whether the gifted income is to be utilised by the donee trust fully for its religious and charitable purposes or whether the donee trust had to keep intact the corpus of the donation and has to utilise only the income therefrom for its religious and charitable purposes, would not make the slightest difference, so far as entitlement of the donor trust for exemption under section 11(1) goes.
Mr. Patel, for the assessee, further submitted that even apart from the aforesaid legal position, this question is also fully covered by the instruction issued to all Commissioners by the CBDT on January 5, 1978, to which we have made a reference earlier. The full text of the said instruction No. 1132 reads as under : DCIT vs.Gujarat Energy Research and Management Institute Asst.Year –2010-11 "A question has been raised regarding the availability of exemption in the hands of charitable trusts of amounts paid as donation to other charitable trusts. The issue has been considered by the Board and it has been decided that as the law stands at present, the payment of a sum by one charitable trust to another for utilisation by the donee trust towards its charitable objects is proper application of income for charitable purpose in the hands of the donee trust; and the donor trust will not lose exemption under section 11 of the Income-tax Act, 1961, merely because the donee trust did not spend the donation during the year of receipt itself.
The above position may kingly be brought to the notice of all officer working in your charge."
This instruction shows that apart from the legal position that may be emanating from various provisions of the Act, the Central Board of Direct Taxes itself has issued a clear-cut guideline to all the Commissioners of Income-tax that a charitable trust will not lose exemption under section 11 of the Act if it passes a sum of money to another charitable trust for utilisation by the donee trust towards its charitable purposes and that it shall be proper utilisation of money by the donor trust for a charitable purpose. We agree with Mr. Patel for the assessee that the said instruction squarely covers the facts of the present case. It cannot be disputed that the donor trust had made payment of the sum of money covered by the donation to another charitable trust, viz., the donee trust and also it was for utilisation by the donee rust for its charitable purpose. Utilisation does not mean that the entire amount has to be spent forthwith and that it cannot be kept as corpus and its recurring income utilised for charitable purposes. In any case, so far as the donor trust is concerned, once it makes payment of the donated amount to the donee trust which is a religious and charitable trust which has to utilise the donation for its own purposes, it would be a proper application of the income for charitable and religious purposes.
Mr. Soparkar, for the Revenue, submitted that the aforesaid instruction will not apply to the facts of the present case as the circular no-where contemplates a donation wherein the donee rust is not allowed to spend the donated amount the whole hog for its charitable or religious purpose but has to keep it intact as corpus and has to utilise only the income thereof. It is not possible to agree with the aforesaid fine distinction sought to be drawn by the learned advocate for the Revenue in the light of the wording of instruction No. 1132. Even the last sentence of para. 2 indicates that whether in the given year, the donee trust has spent the donation or not, would be a totally irrelevant consideration. What the donor trust does is the only relevant DCIT vs.Gujarat Energy Research and Management Institute Asst.Year –2010-11 matter. Utilisation by the donee trust in any year would not be relevant for the purpose of deciding whether the donor trust gets exemption under section 11 of the Act or not. This is an additional aspect of the matter, therefore, which enables the assessee to succeed. These instructions are binding on all the officers under the Act and, therefore, even apart from the legal position which we have discussed earlier, the first contention canvassed by the Revenue will have to be held to have been squarely covered against it by instruction No. 1132 itself.” Respectfully relying upon the ratio laid down by the Juri ictional High Court in favour of the assessee in the identical facts and circumstances of the case as aforesaid, we do not find irregularities in allowing the exemption by the CIT(A) as claimed by the assessee since the expenditure has been incurred as per the object of the society and in terms of a statutory provision of another trust having similar object so as to warrant interference. Hence the order is passed in affirmative i.e. in favour of the assessee and against the Revenue. The appeal preferred by the Revenue is, thus, found to be devoid of any merit and hence dismissed.
In the result, the Revenue’s appeal is dismissed. This Order pronounced in Open Court on 02/12/2019 (AMARJIT SINGH) JUDICIAL MEMBER Ahmedabad; Dated 02/12/2019 TANMAY, Sr. PSITA No.1720/Ahd/2015 DCIT vs.Gujarat Energy Research and Management Institute Asst.Year –2010-11 आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent. 3. संबं"धत आयकर आयु"त / Concerned CIT 4. आयकर आयु"त(अपील) / The CIT(A)-
"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड" फाईल / Guard file. आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.